INCREDIBLE HULK AND A TOPPY MARKET — LOTS TO BE LEARNED
There are no static, concrete rules in the financial markets. Every single thing you learn about trading or investing is subject to negotiation, obfuscation, and discombobulation. What you think is the truth about a method or rule today, will turn out to be what digs your grave and gives you a shove right into the awaiting coffin tomorrow.
Market tops and bottoms make for especially difficult trading conditions, as the financial markets will pull out every single deceitful practice and outright lie in its arsenal in an effort to confuse the maximum number of market participants at any given moment.
The reason this is the case is due to the fact that those who manage to actually catch the market and position themselves correctly around an intermediate term top or bottom, can reap a very large amount of profits very quickly. Traders and investors realize this possibility and begin taking on large positions in an effort to capitalize at the maximum possible rate.
The market, of course, hates giving away its treasures without first testing the conviction of those who seek its rewards. The more significant the market top or bottom, the more severe the test has the potential to be. What makes these points in the markets especially dangerous is that a test of the intestinal fortitude of a trader attempting to pick a top or bottom, can quickly turn into a dance with death, should the trader be overexposed and inexperienced.
The market will often times begin to signal its intentions to cause mayhem and destruction amongst the herd that has become hypnotized by its seemingly calm demeanor. It begins this process by sudden, slight changes in character. It typically starts with an increase in volatility or volume that has not been seen over a period of months. It continues with even more dramatic changes in behavior: intra-day reversals, massive volume, seemingly trustworthy intra-market correlations breaking down, leadership shifting.
The more significant the market top or bottom, the more violent these shifts in character will be. It's similar to the Incredible Hulk when he is agitated and about to transform from a calm scientist to a green monster that causes widespread mayhem. You'll see twisting, turning, ripping of clothes and then eventually all out rage and destruction. The market does exactly that when it wants to move from bull mode into bear mode or vice versa.
The reason I bring this up is due to the fact that we are at one of those points here and now. The market is beginning to shift personalities. It's right at the point where Dr. David Banner (Incredible Hulk's calm, human form) drops to his knees in anger and his eyes turn yellow, while his jeans start ripping until they become shorts.
The daily ranges are beginning to expand, the volume is growing, the leadership is shifting. The end result is going to be a green beast that makes the bulls wish they had wings instead of horns.
I have recently outlined the bearish confirmations and shifts that are being observed in the markets, as it begins its transformation from a seemingly calm scientist into a raging green lunatic.
The financial markets are always in a state of deceit. If you figure out which side is on the receiving end of the deception, you're one step ahead of the game. Given the vast number of bulls sitting in the front seat of this ship, the changes of behavior in the market that have become apparent as of late, and the fact that the asset allocation party that is January is now behind us, you can expect that the market will begin gut checks and bowel tests of the vast number of stock market bulls relatively soon.
